LONDON -- Stock markets throughout Europe slumped this morning after Italy's political elections ended in stalemate. The possibility of a hung parliament in Rome -- and the rising popularity of Italy's anti-austerity parties -- revived fears of a fresh wave of eurozone trouble. Italy's FTSE MIB index has dived 3.75% on the political deadlock, while the FTSE 100 (FTSEINDICES:^FTSE) index has lost 1.25%.
Coming just days after the U.K. lost its top-tier "AAA" credit rating, the political and economic news of late has suddenly turned for the worse. And these developments may put the brakes on the FTSE 100, which breached 6,000 at the start of the year and has been on a flyer ever since. Before today, the blue-chip index had rallied 8% during 2013 and 13% since mid-November. Indeed, the last few months have been a genuine mini-bull run, with the market recording regular daily gains interspersed only by the occasional losing session.
But could now be the time to sell and prepare for the FTSE 100 to dive back below 6,000? On the one hand, at 6,275, London's leading index is valued at 13 times earnings and offers a 3.5% yield -- ratings that do not seem too onerous. That said, the market's valuation is skewed by a handful of lower-rated megacaps -- and there may be good reason why Royal Dutch Shell, for example, trades at just 8.7 times profits.
Meanwhile, consumer brand favorites such as Diageo, SABMiller, and Unilever have been recording fresh all-time highs and trade on forward multiples of 19 or more. Yet all three have reported underlying sales growth in single digits of late. Elsewhere, water firms such as Severn Trent and United Utilities trade at 18 times forecast earnings -- yet the long-term growth rate for both companies can't be that much greater than inflation. Meanwhile, Croda International reported results today that showed growth of less than 5% -- yet the chemicals firm is valued at 19 times profits.
Certainly the market seems to be pricing many FTSE 100 names in an optimistic fashion, so it may make sense to bank some profits on shares that have done well of late and whose valuations look up to speed with events. Although today's market does not look like the top of the dot-com boom, having a bit more cash on the sidelines should make down days like today -- and a potential FTSE drop below 6,000 -- a little bit more bearable.
Indeed, if you already have some cash on hand and are looking for potential bargains to bag, this free report reveals several blue chips that could outperform even if the market suffers a prolonged setback. The shares identified are familiar names that offer a mix of fat dividends, defensive qualities, robust prospects, and low ratings. These potential FTSE winners can be yours if you click here right now.
Maynard does not own any share mentioned in this article. Motley Fool newsletter services have recommended buying shares of Unilever and Diageo. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.